I would have advised my grandmother to buy snap at 27-29. Once in a lifetime op.
Global Macro Trading Journal
- Thread starter Daal
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There is an certain genius to this type of advice, even though it looks stupid. In some level she knows that the payoff could be gigantic but the risk is limited. Most people don't apply that intution properly, they oversize the investments and they don't control for risk (with stops and exit strategies).
What I want to do is to mix the best of Jim Cramer with the best of Paul Tudor Jones. How to take 'crazy' risks while at the same time protecting my downside/capital. If you think about it, its what the Taleb barbell is all about but I think it can be applied in different portfolios in different ways. That's what I want to explore going forward
Same thing with riding this US equity bull market. I believe it will continue and might become a bubble. Right now its Tony Robbins switching from 'sell stocks' in 2010 to asking people to be 'Unshakable' in equities in 2017. When the avg person and mainstream media start to do that, its time to get concerned
I want to be Abby Joseph Cohen on the way up and Noriel Roubini when risks are too high. But it isn't easy because certain catalysts could just hit the market and equities will drop almost regardless of anything else
I want to be Abby Joseph Cohen on the way up and Noriel Roubini when risks are too high. But it isn't easy because certain catalysts could just hit the market and equities will drop almost regardless of anything else
As a matter of fact, my brother (who knows nothing about finance and stocks) thought the FB IPO was a buy. Of course, when it tanked I thought (like a typical Wall Street asshole would) "contrarian signal, I should have shorted". Yet here we are with the stock at $137 from the IPO price of $38. In some unconcious level he must have thought 'I use this thing everyday, it has a monopoly on people, I could get really rich' and the beauty of unbounded investments like that is that it tends to be 'idiot proof' by its very nature. Because the payoffs are so massive, one can be wrong 70-80%+ of the time and still do pretty well
Like Taleb says
"Take for example the binomial distribution with B[N, p] probability of success (avoidance of failure), with N=50. When p moves from 96% to 99% the probability quadruples. So small imprecision around the probability of success (error in its computation, uncertainty about how we computed the probability) leads to enormous ranges in the total result. This shows that there is no such thing as "measurable risk" in the tails, no matter what model we use.
Case 2: More scary. Take a Gaussian, with the probability of exceeding a certain number, that is, . 1- Cumulative density function.. Assume mean = 0, STD= 1. Change the STD from 1 to 1.1 (underestimation of 10% of the variance). For the famed "six sigmas", the area in the tails explodes by 2400%. For the areas above 10 sigmas (common in economics), the area explodes by trillions."
And that only talks about the probabilities, it doesn't even touch the problems when dealing with the consequences of tails (the payoffs)
A skeptic of certain unbounded equity investments thinks he knows the probabilities associated with the tails as well as the payoffs. That is ridiculous, I'd say MORE ridiculous than a random person thinking they can get rich from a unbounded investment
Equities have positive expected value anyway, its like getting paid to play the lottery (except this lotery has no limit on the payout)
Like Taleb says
"Take for example the binomial distribution with B[N, p] probability of success (avoidance of failure), with N=50. When p moves from 96% to 99% the probability quadruples. So small imprecision around the probability of success (error in its computation, uncertainty about how we computed the probability) leads to enormous ranges in the total result. This shows that there is no such thing as "measurable risk" in the tails, no matter what model we use.
Case 2: More scary. Take a Gaussian, with the probability of exceeding a certain number, that is, . 1- Cumulative density function.. Assume mean = 0, STD= 1. Change the STD from 1 to 1.1 (underestimation of 10% of the variance). For the famed "six sigmas", the area in the tails explodes by 2400%. For the areas above 10 sigmas (common in economics), the area explodes by trillions."
And that only talks about the probabilities, it doesn't even touch the problems when dealing with the consequences of tails (the payoffs)
A skeptic of certain unbounded equity investments thinks he knows the probabilities associated with the tails as well as the payoffs. That is ridiculous, I'd say MORE ridiculous than a random person thinking they can get rich from a unbounded investment
Equities have positive expected value anyway, its like getting paid to play the lottery (except this lotery has no limit on the payout)
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I'm not saying one should buy every IPO or every stock that is said to have huge potential but I do think that taking those risks (with a Tudor Jones risk management plan with it) in certain situations make a lot of sense.
Right now I think those are good shots to take because people are getting optimistic, they are getting more confident that the stock market is safe, etc. In this type of situation, an speculative investment could rise on mania alone and if not, perhaps the corporate performance will be good. There are many ways to win, so its a decent shot to take. In strong bull markets its so hard to make money shorting, being a skeptic is a form of a short sale so it makes sense to be in the other side of the trade
Right now I think those are good shots to take because people are getting optimistic, they are getting more confident that the stock market is safe, etc. In this type of situation, an speculative investment could rise on mania alone and if not, perhaps the corporate performance will be good. There are many ways to win, so its a decent shot to take. In strong bull markets its so hard to make money shorting, being a skeptic is a form of a short sale so it makes sense to be in the other side of the trade
The nice thing about these investments is that they are so naturally leveraged. I invested 1% of capital on SNAP, my risk was around ~0.15% of capital. Had it worked, it might have produced a 1-2% return. That's almost enterely an 'extra return' because it requires so little capital. I'm still getting my 5-6% a year from my core portfolio (of stocks, bonds and gold), but ocasionally, I will get an extra 1-3% when I get lucky while utilizing very little capital. Compounded over the years this can boost returns a great deal. Of course, there are the extra returns coming from discretionary macro trades and other bets, but these are a lot more capital/margin intensive
I was thinking about one thing the other day
Becky Quick told Buffett that she invests all her retirement money in the S&P500. In a lot of ways, this is genius but not for the reason she thinks. Thing is, CNBC is naturally hedged against a bear market as financial media tends to boom during chaos. I believe 2008 was a record year for them (in terms of viewership and I would assume ad dollars). ZeroHedge also should be fully long everything as their google ad words revenue should skyrocket should be a bear market occur. In fact, it might even be prudent to get involved with ES futures and use some leverage
This sort of 'natural' hedge can make one take a risk that ordinarilly looks reckless but when combined with a natural hedge, it makes a great deal of sense.
A trader has some of this 'natural hedge' as bear markets tend to send volatility up, offer more opportunities and disruption. An astute observer ought to be able to profit from that.
I do some version of this on FNMA,FMCC, FNMAS. I'm long FNMAS and when this thing dumps big (due bad news), its great because it offers very good daytrading opportunities with a lot of volume and that are quite predictable (on the common stock). So I'm naturally hedged there (and if it soars, great)
But this is sort of a concept that books, articles and blogs don't talk about. There are probably deeper implications and way to 'produce' natural hedges that I'm not even aware. Its something to think about more because its so powerful when you are naturally hedged. It should enable one to do all kinds of 'investment engineering'
Becky Quick told Buffett that she invests all her retirement money in the S&P500. In a lot of ways, this is genius but not for the reason she thinks. Thing is, CNBC is naturally hedged against a bear market as financial media tends to boom during chaos. I believe 2008 was a record year for them (in terms of viewership and I would assume ad dollars). ZeroHedge also should be fully long everything as their google ad words revenue should skyrocket should be a bear market occur. In fact, it might even be prudent to get involved with ES futures and use some leverage
This sort of 'natural' hedge can make one take a risk that ordinarilly looks reckless but when combined with a natural hedge, it makes a great deal of sense.
A trader has some of this 'natural hedge' as bear markets tend to send volatility up, offer more opportunities and disruption. An astute observer ought to be able to profit from that.
I do some version of this on FNMA,FMCC, FNMAS. I'm long FNMAS and when this thing dumps big (due bad news), its great because it offers very good daytrading opportunities with a lot of volume and that are quite predictable (on the common stock). So I'm naturally hedged there (and if it soars, great)
But this is sort of a concept that books, articles and blogs don't talk about. There are probably deeper implications and way to 'produce' natural hedges that I'm not even aware. Its something to think about more because its so powerful when you are naturally hedged. It should enable one to do all kinds of 'investment engineering'
Daal, the news coming out of Brazil seems to be uniformly bad, other than on the currency.
Could I ask for your views as someone who is actually there?
http://money.cnn.com/2017/03/07/news/economy/brazil-gdp-2016/
https://www.bloomberg.com/news/arti...l-over-brazil-braces-for-the-end-of-the-world
I'm looking beyond the sensationalist headlines and trying to get a feel for what this all means is real terms.
Could I ask for your views as someone who is actually there?
http://money.cnn.com/2017/03/07/news/economy/brazil-gdp-2016/
https://www.bloomberg.com/news/arti...l-over-brazil-braces-for-the-end-of-the-world
I'm looking beyond the sensationalist headlines and trying to get a feel for what this all means is real terms.